Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.

html

Excel Easy
#1 Excel tutorial on the net Excel Introduction Basics Functions Data Analysis VBA 300 Examples Ask us

Capital Investment
Formulate the Model | Trial and Error | Solve the Model
Chapter
Use the solver in Excel to find the combination of capital investments that maximizes the total profit.
Solver
Formulate the Model
The model we are going to solve looks as follows in Excel.

Learn more, it's easy

Transportation Problem

Assignment Problem

Shortest Path Problem

Maximum Flow Problem

Capital Investment

Sensitivity Analysis

Download Excel File

capital-investment.xls

Follow Excel Easy

1 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

1. To formulate this binary integer programming (BIP) model, answer the following three questions.

a. What are the decisions to be made? For this problem, we need Excel to find out which capital investments to
make (Yes=1, No=0).

b. What are the constraints on these decisions? First, the amount of capital used by the investments cannot
exceed the limited amount of capital available (50). For example, investment One uses 12 units of capital. Second,
only investment One or investment Two can be made. Third, only investment Three or investment Four can be
made. Fourth, investment Six and investment Seven can only be made if investment Five is made.

c. What is the overall measure of performance for these decisions? The overall measure of performance is the
total profit of the capital investments made, so the objective is to maximize this quantity.

2. To make the model easier to understand, name the following ranges.

Range Name Cells

Profit C5:I5
YesNo C13:I13
TotalProfit M13

3. Insert the following five SUMPRODUCT functions.

2 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

Explanation: cell K7 (the amount of capital used) equals the sumproduct of the range C7:I7 and YesNo, cell K8
equals the sumproduct of the range C8:I8 and YesNo, etc. Total Profit equals the sumproduct of Profit and YesNo.

Trial and Error

With this formulation, it becomes easy to analyze any trial solution.

1. For example, if we make investment One and Two, the second constraint is violated.

3 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

2. For example, if we make investment Six and Seven, without making investment Five, the fourth constraint is
violated.

3. However, it's OK to make investment One, Five and Six. All constraints are satisfied.

4 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

It is not necessary to use trial and error. We shall describe next how the Excel Solver can be used to quickly find
the optimal solution.

Solve the Model

To find the optimal solution, execute the following steps.

1. On the Data tab, click Solver.

5 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

Note: can't find the Solver button? Click here to load the Solver add-in.

Enter the solver parameters (read on). The result should be consistent with the picture below.

6 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

2. Enter TotalProfit for the Objective.

3. Click Max.

4. Enter YesNo for the Changing Variable Cells.

5. Click Add to enter the following constraint.

7 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

6. Click Add to enter the following constraint.

Note: binary variables are either 0 or 1.

7. Check 'Make Unconstrained Variables Non-Negative' and select 'Simplex LP'.

8. Finally, click Solve.

Result:

8 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

The optimal solution:

Conclusion: it is optimal to make investments Two, Four, Five and Seven. This solution gives the maximum profit

9 of 10 08-11 06:49 PM
Capital Investment in Excel - Easy Excel Tutorial http://www.excel-easy.com/examples/capital-investment.html

of 146. All constraints are satisfied.

Small Investment Options

Invest in best SIP plans in just 2 Mins & avail
high returns.

Do you like this free website? Please follow us on Google+

Learn more about the solver, use the side menu >>
Go to Top: Capital Investment | Go to Next Chapter: Analysis ToolPak

COPYRIGHT (C) 2010-2015 WWW.EXCEL-EASY.COM. ALL RIGHTS RESERVED.

EXCEL 2010 TUTORIAL | HOW TO EXCEL | MICROSOFT EXCEL 2010 | EXCEL MACRO

10 of 10 08-11 06:49 PM